意法半導體 (STM) 2007 Q4 法說會逐字稿

Hello, this is the Chorus Call operator.

Welcome to the STMicroelectronics fourth quarter and full year 2007 results conference call.

As a reminder, all participants will be in listen-only mode.

There will be an opportunity for you to ask questions at the end of today's presentation.

(OPERATOR INSTRUCTIONS).

The conference is being recorded.

At this time, I would like to turn the conference over to Stan March, Vice President, Investor Relations for STMicroelectronics.

Mr.

March, please go ahead.

Thanks, Vicky, and thanks to all of you who've dialed in and are joining us today for our periodic call, this time to discuss Q4 and full year 2007 results.

Hosting the call today for STMicroelectronics is our Chief Executive Officer and President, Carlo Bozotti.

And joining Carlo on the call are Alain Dutheil, our Chief Operating Officer, Carlo Ferro, our Chief Financial Officer, Tommi Uhari, our Executive Vice President responsible for the Mobile and Multimedia Communications Group and Carmelo Papa, our Executive Vice President responsible for Industrial and Multi-segment Sector.

After some preliminary comments by Carlo, we'll give the opportunity to have you ask questions, as Vicky noted.

But please, during the Q&A portion of the call, please limit yourself to one question and one follow up so that we can navigate through the queue as quickly as possible and maximize the question and answer interchange.

And secondly, some of the comments that we're going to make today are forward-looking and, as such, are covered by risk factors which you can find listed in the release of earnings which were issued last evening after the close of the New York Stock Exchange, or in our -- STMicroelectronics' filings with the Securities and Exchange Commission.

If you have any questions on this topic, please feel free to contact myself or a member of the Investor Relations team.

With that brief introduction, I'd like to go ahead and turn the microphone over to Carlo Bozotti, our President and Chief Executive Officer.

Carlo?

Thank you, Stan, and hello.

Thank you for joining us on this call today.

The fourth quarter of 2007 tracked closely to our plan, with both revenue and gross margin exceeding the mid-point of our outlook.

Earnings per share before restructuring and other one-time charges was $0.27.

On a sequential basis, net revenues were up 6.9% and, excluding our Flash Memory Group, net revenues were up 7.7%.

Sequential sales growth was driven by the strong performance of our industrial product offerings and our improving market position in Wireless.

Year-over-year fourth quarter net revenues increased 10.4% and, excluding FMG, increased 13%.

Year-over-year quarterly revenue growth reflected real traction in ST's efforts to improve product positioning in both converging multimedia and power applications.

Looking at sequential revenue growth by market segment, Telecom was up 11%, Industrial was up approximately 9%, followed by Automotive and Computer, both posting sequential revenue growth of about 6%.

As we had anticipated, Automotive returned to growth in the fourth quarter.

The only area where results came in lighter than we anticipated was Consumer.

Why Digital Consumer increased sequentially, overall, Consumer declined slightly due to analog consumer and displays.

Looking at our Product segment, ASG Q4 revenues increased 9.1% sequentially and 13.3% year over year.

Imaging products, data storage and application-specific Wireless products were the drivers of both year-over-year and sequential sales performance.

Operating profit for ASG decreased sequentially due to the impact of currency and on increased R&D expenses that reflected the acquisition of the Nokia design team.

IMS revenues increased 5.3% sequentially and 11.3% year over year, on strength in MEMS and advanced analog products.

IMS operating profit improved year over year and sequentially showed resilience in the tough currency environment.

And finally, FMG sales increased 1.6% sequentially, but were lower by 4% in comparison to the year-ago fourth quarter.

Operating profit improved sequentially, due to the benefit of suspended depreciation in assets and for sale.

Sequentially, gross margin in results largely tracked our expectations.

In total, gross margin improved sequentially as anticipated.

Excluding FMG, we anticipated the sequential decrease in gross margin due to negative effect of currency and product mix due to a higher weighting of imaging products.

Moving to the full year of 2007, let me first discuss market position where we made significant progress.

We are strengthening ASG.

Our revenue growth of 25% in comparison to the start of the year demonstrates this progress.

While ASG grew less than the market for the full year, with revenues up about 1%, our position going into 2008 is dramatically improved.

In addition, our IMS Group boosted, amongst others by MEMS and advanced analog, grew sales over 10% in 2007; well above market growth.

Overall, we believe ST was able to maintain our market position in 2007, growing in line with the market we serve on a strong improvement during the second half of this year.

Secondly, our net operating cash flow increased significantly; up 26% to $840m for the full year.

Looking to the fourth quarter, we generated $188m in net operating cash flow, even after [spending] an aggregate of about $250m for the portion of the Crolles2 equipment purchase and the Nokia agreement which closed in early November.

Inventory turns, excluding FMG, increased to 4.4 times, from 3.9 in the third quarter.

While this is the second quarter in a row of improvement, we also benefited from some one-time shifts by our customers.

We would expect the net returns to decrease seasonally in the first quarter, while we continue to target 4.5 to 5 times range by the end of 2008.

Third, our work in repositioning the Company has enabled us to report significant improvement in our return on net assets [and] RONA as we progress through 2007.

For the full year it reached 8.2%.

Importantly, in our final two quarters of the year, our RONA, excluding FMG, moved within our target range of 12% to 20%.

And finally, our balance sheet is very solid, with cash of almost $3.5b and a net financial position of $1.27b at the year end.

Turning to the first quarter of 2008, let me share our views and then our outlook as a result of what we are seeing.

While there is a general concern about the current economic situation, and we remain vigilant in this regard, we are not seeing evidence of weakening demand at this point.

In fact, our visibility is higher than that of last year's first quarter at the same point in time.

Our outlook is based on an assumed average effective exchange rate of $1.46 to EUR1 and on an expected FMG result for the full quarter and Genesis results for the next two months in the quarter.

With our current backlog and visibility, we expect that, on a sequential basis, net revenues will decrease between 5% and 11%.

This is generally in line with our normal first quarter seasonality.

For the gross margin we are targeting 36.3%, plus or minus one percentage point.

Let me spend some time on currency.

We speak about this each quarter as, unfortunately, the U.S.

dollar continues to weaken.

We have made many significant many actions to improve our cost structure, but much of our progress has been upshot by the exchange rate dynamic.

For 2007, we estimate that operating profit on a constant currency basis would have been $310m higher and would have exceeded the 2006 operating profit by $240m.

In response, we will work on four primary axes; our portfolio management, restructuring, asset-lighter strategy and top line efforts.

We are also working diligently on product portfolio positioning and the next milestone here is the completion of the divestiture of our FMG business segment.

This will enable us to be 100% focused on our ongoing businesses, ASG and IMS.

In addition, we will become less tolerant of those under-performing product families and consider them for pruning.

However, we will also look for selected acquisition candidates in our core businesses, converging multimedia and power affiliates, then improve returns.

Secondly, in restructuring we will accelerate the current effort underway, with the separation of the Flash Memories in U.S.

and Morocco.

Third, we will continue to reduce our capital spending.

In 2007 we spent 11.4% of sales for CapEx.

For 2008 we are reconfirming that our capital budget is targeting a CapEx to sales ratio at or below 10%.

Based upon the conclusion of two purchases relating to Crolles2, we would anticipate a higher CapEx run rate in the first half of the year compared to the second half.

It is worth noting that with our asset-lighter strategy we have much more flexibility to manage through potential changes in the demand environment.

Fourth, we expect to solidly grow the top line in 2008, out-performing the market and gaining share.

We are entering 2008 with a strong product portfolio and customer base.

Let me mention a few areas.

Wireless is our largest market segment.

Excluding Flash, this represents approximately 32% of our net revenues.

We have a very strong dynamic in our Wireless business.

We saw good progress in third quarter revenue growth and that continued in the fourth quarter.

In addition, we have (inaudible) the 3G digital baseband business of [Ericsson Mobile] platform licenses during the 2007 fourth quarter.

The product volume reached in 2007 was basically in line with the plan we articulated at our Analysts' Day in May.

In confirming what we said last quarter; volume estimates for 2008 are looking very robust.

Connectivity continued to have very strong growth, driven by our Bluetooth and wireless LAN positioning.

Our new products here are focused on the integration of functionality and we expect continued sales growth in 2008.

Importantly, we acquired the Nokia 3G design team and intellectual property in November.

As you know, we are also working on the 3G digital baseband product at 45nm for delivery in 2010.

In Computer Peripherals, we began volume shipments of our proprietary [90]nm System-on-Chip for the data storage market in the fourth quarter and expect this to become an important revenue driver for this segment in 2008.

Last quarter, we were awarded a design win for our proprietary 65mm System-on-Chip, again demonstrating our technical advances.

In Consumer, we continue to lead in the set-top box portion of the market.

Whether it is satellite, cable, terrestrial or IP, we are enjoying a leading position and continue to innovate with our 65nm products, such as the 7111 and the 7200 devices.

In Digital Television we will benefit from the intellectual property coming from Genesis and look to expand our presence in the image quality sensitive portion of the Digital TV market.

In Automotive, following normal seasonal weakness in the third quarter, Automotive was up in the fourth quarter and for the full year.

Our Automotive products will be an important driver of growth in 2008 as semiconductor content continues to increase.

Further, we have important new wins, including a Nomadik-based multimedia processor for navigation devices.

Our traditional engine and car body designs' progress continues as well.

Turning to IMS, MEMS reached about $100m in sales in 2007 and we expect the ramp to continue on a steep curve in 2008.

In addition, we saw continued progress with our efforts in advanced analog products and micro-controllers.

Advanced analog targets converters, power management and portable (inaudible) electronics.

In MCUs we are emphasizing our ARM-based 32 bit products.

So, let me conclude by saying that 2007 was a year of significant progress on our strategic roadmap.

First, in Memory through the creation of NUMONYX, then in process R&D by joining the IBM consortium.

And in our cost structure efforts and restructuring we have made important decisions to further strengthen ST.

We also made clear and measurable progress in reducing the capital intensity of the Company and have, likewise, driven significant cash flow improvement in 2007.

As you can tell, we are looking forward to continuing our progress in 2008.

Now, let me stop to take your questions.

(OPERATOR INSTRUCTIONS).

The first question is from Mr.

John Dryden, Charter Equity Research.

Please go ahead, sir.

Hello, good morning, and good afternoon.

First, with the expected revenue growth in ASG, can you discuss what negatively impacted ASG margins?

Any more color outside of currency or the Imaging mix?

And within Telecom, what was better than expected?

And what fell short of double-digit growth?

Okay.

It's Carlo Ferro speaking.

Good morning, good afternoon, everybody.

On the ASG margin dynamic, we have now displayed three major ingredients this quarter.

The first one on top, of course, of the revenues growth that we have already mentioned.

The first one is the exchange rate hit.

There is a significant [disappointment] for this group of R&D in Europe and this Group is significantly reflecting the 6% plus revaluation of the euro against the dollar when moving from the third into the fourth quarter [this year].

The second important ingredient is that, in the quarter, somehow the mix of ASG product has not improved and has, as you know, temporarily [decelerated].

And the third ingredient is that, as anticipated, we have completed early in November the acquisition of the 3G design team.

This is an important addition of competences to build up product for shipment in 2010.

This is also an additional $7m expenses in the current quarter -- in the last quarter, sorry, I am going forward.

John, do you have a follow up on that?

I just had a follow up on Telecom.

It was up 11% sequentially and I just wanted to know what was above expectations and what may have fell short of double digit?

Overall, I think the core business in Wireless was very strong.

The Imaging was very strong.

I would say that communication infrastructure they didn't grow double digit.

So it was very much driven by the Imaging, the camera module and the core Wireless business.

Thanks for taking my questions.

Thank you.

Next question please, Vicky?

The next question is from Mr.

Nicolas Gaudois, UBS.

Please go ahead, sir.

Yes, good afternoon, gentlemen and (technical difficulty) quarter.

Just wanted to ask a first question on the valuation of NUMONYX.

You made a comment this morning that the valuation has been adjusted down.

Should we just make a gross adjustment using the new impairment charges?

Or could you give us a bit more help here vis a vis how we should value NUMONYX at close?

And I've got a follow up, thank you.

Okay, Carlo Ferro again, Nicolas.

I will take your question.

Our impairment and restructuring charges this quarter include $249m related to the NUMONYX transaction.

This number reflects the combined effect of two ingredients of valuation.

One is the effect of the result of the deal as they have been disclosed in our Press Release in late December last year.

The second done is a revaluation of our future equity interest in NUMONYX, but still [the] closing date could be subject each quarter to some, purely after closing would be subject to adjustment based on equity change into the new company.

The reason of revaluation at the end, for the revaluation of our equity interest, we are referring to effect of parameters.

A very relevant one is the divestment of (inaudible) and third parties.

Other one are market-related methodologies like trading multiples of comparable companies.

So in this respect the evolution occurred in the fourth quarter suggested to adjust downside by certain extent the expected future equity interest in NUMONYX.

Having said that, in turn our overall count was to our shareholders and investors.

Of course, I can confirm that this kind of valuation is subject to third party in different enterprise and those are -- and are based on (inaudible).

But I guess your question was more on the substantial increase.

Yes, I was just trying to get a quantification of where we are in terms of a valuation vis a vis where we were in May to have a -- in order for us to have a -- to present a more transparent valuation of some of the (inaudible) affected.

I would say that we are 100% completed at this stage as to the current situation.

Then whom for these trading multiple on the comparable company dramatically change from now through the end of the quarter when we expect with the closing.

Maybe it's impossible further to (inaudible) not so significant, since I said that it is the effect of various methodologies.

And I would also highlight other ingredient.

For instance, the exchange rate at the time of closing could affect the final impact.

The level of inventory at the time of closing may affect the final impact.

So having said that, at this stage, with the addition of $249m, we have recognized where we are so far.

I cannot exclude that we may have some further mitigated tuning, plus or minus, during the first quarter.

That's fine, thank you.

And as a follow up, can I -- could we come back to Ericsson Mobile platform.

I think a little more than we've been expecting in the industry that -- can you hear me?

Yes, yes, we hear you very well, yes.

I was reading about the dispute in the industry that you are ramping reasonably solid levy in platform into '08.

But the question is more the next generation where there is some clear noise, I would say, that one of your competitors may effectively come back with [a further 65nm].

In particular, as EMP has alluded to the fact before that they are considering moving to single chip at 65nm and ASG is really capable of doing that their CMOS at 45.

So could you give us any degree of comfort that you are already designing for the next generation of EMP platforms in 2009?

Or you simply don't know at this stage what's going to happen?

Yes, Tommi.

Yes, please.

Can you comment, please?

Tommi Uhari.

Yes, this is Tommi Uhari, so -- without commenting on the, let's say, integration level which I think is something that will be seen when the products are out, I think that we can clearly say that where our current understanding is that for the next manufacturing node, so 65nm, will clearly continue to command a major share of the EMP business.

And I think that the rumors you are hearing are false.

Okay.

Fair enough.

Well, that's [good] talking.

Thank you very much.

Thank you very much, Nicolas.

Vicky, we'll take the next question, please.

The next question is from Cody Acree, Stifel Nicolaus.

Please go ahead, sir.

Thank you.

You made a comment earlier, Carlo, that there was some temporary deterioration in the mix of the ASG Group.

Can you give a little more details there on what happened, what was the dynamics and then what do you expect for Q1?

Yes, Cody, the ASG gross margin in Q4 has been reflected a significant phase expansion of sales in the Imaging business and camera module.

As you are familiar with this business structurally around at lower margin due to the significant pass through of components like, [lances].

Frankly, I'm also to admit that this is not, given the current competitive (inaudible) of the business, one of our most profitable and highest-margin business.

So I would characterize this Q3 to Q4 dynamic as driven substantially by some third-party revenues by the way of phases function and additional customers in camera module.

And how does that trend going through the first half?

Tommi, do you want to eventually translate the question into sales for Imaging entering the first half of 2008.

Yes, we see that the relative share of Imaging versus the other part of Wireless may slightly decrease in the first half, but our visibility this year is still somewhat limited.

But I would think that it will still be slightly better than in Q4, in the sense that this would have a higher mix of the products where there is not such a high amount of pass through content, as Carlo was already outlining for you.

Perfect, great.

Thank you, Tommi.

And then secondly, your comments on weakness in the consumer sector of ex-Wireless, and some of this may have an overlap with these camera] modules, were you seeing anything outside of normal seasonality?

Or could you give us a little more detail of what you're seeing as far as weakness?

And then how does that dovetail into what you're seeing as far as stronger visibility this time than maybe you were this time last year?

Yes, well, you refer to the Consumer portion of our business, or in general?

You had -- I think in your prepared remarks you said the Consumer portion, you were -- they were weak in Q4 except for Wireless.

Yes, so then I -- maybe then I comment in general, but I ask Philippe Lambinet that is General Manager of our Consumer business to comment on Consumer trends.

Yes, basically, we can say that the trend was quite favorable on the Digital Consumer part of our business.

However, we're ramping down the end of our CRT, basically, the old analog TV part of our business.

So that's basically what happened.

So we were weak in the analog part in normal shape and it's in good shape for the Digital part.

And does that revert as we -- is that already hitting the inflection, or is that yet to come?

We've always been much more focused on Digital anyway, so the importance of analog is getting lower and lower.

And it's the impact of the market variation of the analog part getting less and less anyway.

And then maybe lastly, with your hedging efforts in place, obviously, you get some delayed impact of the dollar/euro move.

Not to be too optimistic, but we've obviously seen a little bit of strength in the dollar lately.

If that were to continue, how long of a tail do we have before we see changes to the euro to changes to your income statement?

This is (inaudible), Carlo, [your bag].

As you know, our hedging strategy is based on about 50% hedging of the total exposure over a six-month horizon.

When talking in respect to the current quarter, I would say that could the exchange rate remain below -- at or below the today level, we may have some very little advantage or some advantage.

To characterize the current guidance is based on $1.46 effective rate, and this refers to an expected market rate a little bit higher than the average rate and the outstanding hedging, which is more in the range of $1.43, $1.44.

For second quarter we have currently hedged a portion of the target amount, not the total target amount, so we may eventually take some advantage if -- as you have somehow envisaged.

But for sure, it's very difficult to anticipate at that time the exchange of the euro/dollar -- the euro [with the] somehow slightly weaker in respect to the U.S.

dollar.

Great, thanks for all the help.

Thank you, Cody.

Vicky next question, please.

The next question is from Mr.

Simon Schafer of Goldman Sachs.

Please go ahead, sir.

Yes, thanks so much, and sorry for missing your meeting this morning.

I am not sure I understood the answer correctly to a previous question, actually.

You made the statement about perhaps visibility that you felt was better this time around than it was this time last year.

Could you just reiterate on what you are basing that on?

Thank you.

Yes, Carlo Bozotti here.

I think that, of course, we remain very vigilant and we are concerned about the overall macroeconomic situations and risks and vulnerabilities.

But frankly, from our customers we do not see any business trend that is somehow impacted by this.

And the booking's were pretty solid during the fourth quarter of last year, and is solid also in the first few weeks of this year.

So the concern remains because, of course, we must be very vigilant and work together with our customers to track and monitor the order entry and their [quarters] continuously.

But at this point of time, we do not have any evidence of negative trends from our customers.

So with the guidance that we have given, we expect to have important growth Q1 2008 over Q1 2007.

There are blocks of new products that will significantly contribute.

We mentioned the MEMS, for instance.

We mention Nomadik.

We mention Ericsson Mobile platform.

IMS will continue to grow solidly.

So, of course, there is a degree of concern for the economic situation overall, but I believe that from our customers we do not have any specific negative signs at this point of time.

Very clear, thanks.

And then just looking at Q1, the guidance that you've given for March is, as you say, in line with historical patterns.

But is there any end market segment that is perhaps under-growing, or outgrowing what you describe as typical seasonality at this point?

Well, I would say that the cyclical swing in Wireless is important in Q1.

There are other areas like, for instance, Automobile where we do not see any decline at all.

So I think it is very much -- of course, there is the Chinese New Year in China.

This is somehow impacting certain consumer products and certain -- also IMS products.

But it's very much in line with what we have -- we had in the previous years, moving from Q4 to Q1.

Also, the bookings that I just mentioned one second ago that we realized in -- that we achieved in Q4 has a pretty positive impact on the portfolio of orders and the backlog for the second quarter of this year.

Thanks.

And a very basic question, just for Carlo Ferro, what was the depreciation in the quarter, excluding Flash?

Yes.

Simon, by the way we meet with you this morning.

You have been very kind to -- perhaps to justify for that it was not needed.

So depreciation in fourth quarter, excluding Flash, have been $285m.

Thanks so much.

Sure.

Vicky, the next question, please.

Next question is from Mr.

Tristan Gerra Robert W.

Baird.

Please go ahead, sir.

Hello, guys.

Do you expect the Nomadik navigation win to be as significant as any mobile phone type of win?

And do you expect Nomadik revenues to be up year on year as a result?

I think I will comment; Carlo Bozotti here.

I think we expect that in 2008 the two programs, the Wireless program and the Automotive programs will yield significant revenues, and [I] guarantee significant growth on Nomadik compared to last year, both of them.

Okay.

And as you eventually increase the percentage of production being outsourced, how should we look at R&D this year and next?

You know -- you mean expenses to sales on R&D?

Yes.

In fact, on R&D what we are going to do is to keep our expense to sales in the 17% to 18%.

But what we want to do is to change the relative weight of technology versus product.

And we had last year, or in the past we had about one third of expenses were technology and two thirds on product.

And what we want to do is decrease that and have something like 3% on technology and the rest on product.

So the overall expense to sales should be the same, but the relative weight of the tech -- to the technology and new products will change.

Great, thank you.

Thank you, Tristan.

Vicky, we will take the next question, please.

The next question is from Mr.

Didier Scemama, ABN Amro.

Please go ahead, sir.

Yes, good afternoon, gentlemen.

Actually, congratulations on your gross margin guidance.

I am sorry I couldn't make it this morning; I am not sure you've missed me though!

A couple of questions --

We did, we did.

You are too nice.

You are too nice.

A couple of questions; pretty simple, in fact.

First of all, can you give us a sense of capital spending for NUMONYX in 2008, if you have an idea at this point?

And second of all, now that your RF and Power Management business with [ASIC] is in-house, how do you negotiate pricing with Nokia on those products?

And are you, in fact, designing next generation platforms at this point?

Or is it -- are these headcounts essentially focused on the 2010 [HSP] platform?

And actually I have just a quick follow up, if I may?

Well, I will do -- I would comment on the first one, and then I would ask Tommi to take the second question.

So on the first one, of course, I am not going to mange the Company and I cannot release any capital investment information for NUMONYX.

However, on a global base, and I don't want -- and I cannot get into the specific, I think NUMONYX is very well positioned to grow with a limited capital investment requirement.

Overall, manufacturing -- the manufacturing infrastructure has been greatly simplified with the good potential to move on with the migration of technology in the 8 inch, and to expand in China on the 12 inch, and doing this through a very mitigated effort in capital investment.

And, of course, I cannot release figures for NUMONYX.

But conceptually, I think the positioning is very good, because NUMONYX could move on with the micro lithography evolution in the 8 inch without significant capital requirement.

And the capital investment programs in China are very effective from the point of view of increased volume over capital required.

And for the portion of negotiation with customers, I would leave to Tommi.

(Inaudible).

All right, so this is Tommi.

So basically, with Nokia we are in a transition from a business model of providing them ASICS to providing platforms.

And already with the Nomadik offering we are running this platform business model today.

So what we see is that the mix here shifts gradually.

And it's fair to say that for the coming years we still see the ASIC business model also continuing strongly.

And then with the capability that we now have, having been able to integrate well the teams joining from Nokia, for both RF and the mixing area, we are able to proceed well in terms of super integration of integrating the Nomadik, integrating the modem license technology that we have from Nokia, as well as the RF and the mixing now into a variety of different platform combinations, also allowing for monolithic single chip integration in this regard.

So I think the internalization of all this know-how is absolutely critical for the integration steps that we see on the road.

Then, on the particular pricing negotiation approach, I just say -- comment on that, to say that the price pressure continues to be strong regardless of the business model that we are working with.

Okay, I think that's pretty clear.

My second question, my follow up actually would be, in terms of your cash balance which are growing quite nicely, do you see better value in making acquisitions just like you did with Genesis, or in maybe buying back your old shares at this point?

No I think we want to balance out.

This is, I think, is a very clear position from the management of the Company.

I think it's clear that portfolio management, as I just read before, is an important pillar of our strategies.

We will be less tolerate with some more families after the separation of the Memories.

But at the same time, we will make an effort to improve the returns through some selective acquisitions, focusing on the areas of our core business.

In parallel, we want to move on with forms of remunerations to our shareholders.

And you know that we have a process; typically, we do not do this with -- when announcing the first quarter results.

It is something that we do then in February and March before the Shareholders' Meeting.

And I think we will work very hard to run the two in parallel.

Are you considering more capacity reduction, or a reduction, or product pruning, such as maybe [semo sensors] or other products?

At this point, I think it is premature to define what is the product family, but I was referring to product portfolio.

I was referring to product portfolio.

This is the first steps, some more pruning and maybe some acquisition, to improve the product portfolio.

Then as a second step, I talked about restructuring and simplifying our manufacturing infrastructure.

Two years ago we had 75 manufacturing centers; with the separation of Memories, 15.

And with the separation of Memories and with the programs that we have announced already, it is 15.

And I think it's a great simplification.

And, of course, this is not only cutting capacity, but it is also important because we can operate on a much smaller number of fabs, optimizing the volume per fab.

Okay, thanks very much.

Thank you.

Thank you.

Vicky, next question, please.

The next question is from Mr.

Janardan Menon, Dresdner.

Please go ahead, sir.

Can I actually start with a small clarification, which is what exactly do you mean by suspended depreciation in that FMG Group?

Yes, Carlo Ferro is taking the question [Janardan].

The U.S.

GAAP provides that when the decision is made and final to sell a specific asset, the reporting Company should not longer depreciate this specific asset from that moment through the date of actual -- when actually the divestiture occurs.

So what we mean by suspended depreciation of assets held for sale is that, at the time the deal has been signed in late May, so starting in the month of June, certain assets of Flash not designated to be transferred to the Joint Venture and/or committed between Flash business and other businesses of ST, have remained on their balance sheet line in property plant and equipment, and continue to be depreciated.

Other assets that are reported in our balance sheet as assets held for sale have been segregated in this specific category of the balance sheet, and do not longer carry depreciation.

Sorry, it's a technical matter.

I hope we have been helpful.

Please do not -- eventually ask again if I've not been clear.

Sure.

Just to be clear about it, so your $26m EBIT on the -- in the FMG Group is a result of zero depreciation is that the correct --?

No, no.

It's the result of very mitigated depreciation.

But I just want to make clear that the share of [these families] is well above this number.

So there are other depreciations.

So this is a -- a portion of the depreciation is not in, but the portion of the depreciation is in.

And once the deal is concluded, goes into NUMONYX, will the depreciation levels go up at that point in time for NUMONYX from what you are currently showing in the FMG Group?

I would say that -- yes, I would say in respect to what we are currently showing, it will go up.

But we will not go back to the level of depreciation charged prior to signing the deal.

Considering that you may also notice from our reported debt, there is, [I would] qualify, a very significant write off on the Flash assets during 2007.

And, of course, in the purchase accounting of NUMONYX being [the weakest] -- being the [weaker vein] into a lower amount of assets to be depreciated in respect to those that the two parents used to carry on their books.

So would you still say that, after the deal is completed, NUMONYX will be profitable?

What I am saying, and we have is to confirm what we said since the beginning when announcing this deal, is that we do expect that apart a few initial quarters, overall, the NUMONYX deal will be accretive to the ST EPS.

Okay.

Just a question for Tommi, perhaps, which is you have said that you have shown that RF-CMOS capability at 45nm.

Are you able to do that at 65nm as well?

Or is the first time that ST will be able to deliver RF-CMOS integrated baseband RF-transceiver solution be at 45nm?

We are able to do it in 65 as well, and be a [fomenting] form of actual products when the time is appropriate.

Okay.

And my last question is can you just give us an update on your hard disk drive business, how is that trending towards the end of last quarter and how do you see that in the current quarter?

Well, I would say that we are pleased about the evolution of the disk drive business.

And we do not expect a major -- the seasonal adjustment in the first quarter is going to be very mild.

And this is also thanks to the fact that we have an important block of new products, which is the System-on-Chip, that is based on our own IP that is a 90nm solution for the digital core of the disk drives.

So the -- I think Q4 was very much in line with what we expected, and we see a degree of stability moving on in Q1 2008.

And then some more growth, particularly driven by the new products that we have now in production and they are ramping up.

Okay.

Thank you very much.

Thank you.

Thank you, Janardan.

Next question please, Vicky.

(OPERATOR INSTRUCTIONS).

The next question is from Mr.

Nicolas Gaudois, UBS.

Please go ahead, sir.

Nicolas, you are back!

You made it through the queue, okay.

Indeed.

And again, it's probably the result of not being with you in Paris, otherwise I wouldn't be so interested in the call.

Just a quick one on OpEx.

Maybe give us a bit more clarity on whether we should have OpEx in absolute terms essentially flat q over q in Q1, or anything else?

Well, Nicolas, I would say that flat is -- could be a very, very conservative assumption.

So what we are internally targeting in absolute terms is to say that some dollars in OpEx in Q1 in respect of Q4 '07.

Excellent.

And then maybe a very quick one for Alain, utilization rates in Q4 and what we should expect in Q1?

Okay, yes.

Utilization in Q4, average was 85%.

And you need to consider that our 6 inch was 86 and our 8 inch 83%; 83% mainly due to what's happening in Memory.

In fact, we had two fabs, R2 in [Agrate] and [MOQ8] in Singapore, which are loaded.

But the average is 85%.

And on first quarter we are -- we will have about the same.

Okay, thank you very much.

Okay, Vicky, I think we have time for one more question.

Our last question is from Mr.

John Dryden, Charter Equity.

Please go ahead, sir.

John, you are back again too, okay.

Yes, a follow up for Carlo, please, with respect to the strategic strategy to grow revenue in China.

Everything was pretty much in line quarter to quarter and year over year, except for China.

Can you talk about why China was up so much in Q4 year over year 27%, versus 9% for all of 2007?

Is that mix shift weighted for Q4, or strategic timing of your strategy shift into China?

No, I would think that it is frankly very much related to our customer's decision to allocate manufacturing volume into China.

And I do not want to -- of course, I cannot mention the customer's name, but we know exactly what it is.

And there are some very strong boosts in Q4 from some of our customers that have allocated a lot of manufacturing production into China.

I would add that we are also growing nicely on the domestic customers in China.

And -- well, in fact, we define it as a Greater China; that is a combination of Taiwan and mainland China.

And one of the targets that we had for this year is also to make a big step forward in the domestic accounts.

China is already 27% overall of -- 27% of the total sales of ST.

And the weight of the domestic customers is becoming more and more important.

Thank you.

At this time, ladies and gentlemen, this will conclude our conference call.

Just a reminder (technical difficulty) the button by accident here.

In any event, ladies and gentlemen, this concludes our conference call a bit -- not immediately, but just one bit of housekeeping.

The presentation that was given this morning in Paris will be available on the website, as was a webcast of the event for those of you who would like to see it and hear it.

Likewise, you will be able to hear a replay of today's conference call.

Thank you very much for your time.

We look forward to seeing you.

The next major Company event will be at 3GSM in Barcelona.

We look forward to seeing you there.

Thank you very much.

And if you have questions, contact members of the Investor Relations team.

Thank you.

Ladies and gentlemen, the conference call is now over and you may disconnect your telephones.

Thank you very much for joining.

Goodbye.